Edition 57: November 8^th 2007

In this newsletter...

Rates and allowances for 2008/2009
When to sell your investments
Government urged to help smaller firms

News

Rates and allowances for 2008/2009

The tax free personal allowances that will apply from 6th April 2008 have been announced, together with the rates and thresholds for National Insurance.
The main personal allowance for those aged under 65 will be 5,435 pounds. This is the tax free amount you can earn in a tax year.

The personal allowances for those aged over 65 have increased by almost 20%, but the income limit which restricts the benefit of these allowances to those with relatively low incomes has only increased by 4%. This means some retired people may believe they will receive far more income tax free from April 2008, but in reality if their pensions have increased by the rate of inflation they are unlikely to benefit.

The rates of National Insurance remain the same with slight increases in the bands the rates are applicable to. If you run your own company you can pay yourself between 4,680 and 5,435 pounds per year from 6th April 2008 and pay no NI, but still receive a NI credit towards your state pension.

The upper thresholds for NI class 1 (paid by employees) and class 4 (paid by the self-employed) have been increased to help bring them in line with the point where the 40% rate of income tax becomes payable. This alignment will not be complete until 2009. However, this increase in the NI upper threshold means more of your wages or profits carry NI at the main rate: 11% for employees or 8% for self-employed, so you are likely to pay more NI overall in 2008/09 than in 2007/08. NI at 1% is also due on all profits or wages received above the upper thresholds. So having income such as dividends that NI does not apply to will be even more beneficial. 

When to sell your investments

Many entrepreneurs are unhappy about the proposed withdrawal of capital gains tax (CGT) taper relief and its replacement with a flat 18% rate of CGT from 6th April 2008. Taper relief can result in an effective 10% rate of CGT where business assets are sold after two years or more, and an effective 24% rate of CGT where non-business assets are sold after nine years or more. These rates are halved for basic rate taxpayers. So someone selling a business, or an asset that has been used in a business, could see their tax bill jump by 80% if the deal is delayed beyond 5th April 2008.

Conversely an investor, who is planning to sell non-business assets, such as an investment property or quoted shares, will see their tax rate reduce to 18% from perhaps 40% if the sale is made on or after 6th April 2008. However, the tax rate does not tell the full story as indexation allowance, which compensated for the effect of inflation between 1982 and 1998, is also being withdrawn for individuals from 6th April 2008.

Where an asset has been held for many years the indexation allowance can significantly reduce the gain before taper relief, and this applies to both business and non-business assets. However, the deductions due to indexation allowance and taper need to be balanced against the 18% tax rate on the resultant taxable gain payable from next year.
Where the original cost of the asset is quite low, indexation allowance will have only a marginal effect on the final gain. If you are planning to make a significant sale in the next six months ask us to do the calculations to see if you should wait until 6th April 2008 or not.

Government urged to help smaller firms

A new survey published at the start of National Small Business Week has revealed that the majority of business owners believe government action is needed to help boost enterprise in the UK. The poll, which took in over 1600 small firms, highlighted three main areas where entrepreneurs felt change was required. These included a cut in red tape and a
simplification of business regulations; a reduction in business taxation; and an improvement in the advice and support that small firms get from government.